A vendor picks up a 100 yuan note above a newspaper featuring a photo of US president-elect Donald Trump, at a news stand in Beijing on Nov. 10, 2016. Trump has talked tough on trade — and his policies might actually help China. (Greg Baker/AFP/Getty Images)A vendor picks up a 100 yuan note above a newspaper featuring a photo of US president-elect Donald Trump, at a news stand in Beijing on Nov. 10, 2016. Trump has talked tough on trade — and his policies might actually help China. (Greg Baker/AFP/Getty Images)

Donald Trump talks tough on China and has appointed trade hawks Wilbur Ross and Peter Navarro to key positions in his administration. He has threatened to slap a blanket tariff on Chinese goods and talked directly to Taiwan’s President, previously regarded as a major diplomatic offense.

According to “Road to Ruin” author James Rickards, this is Trump’s way of opening the negotiations with China to reach a mutually beneficial trade relationship.

[He] is saying to China: ‘Here is where we are going to start, what have you got for us? Are you willing to be more flexible on foreign direct investment, are you willing to treat U.S. companies in China more fairly, are you willing to stop the theft of intellectual property?’ If China makes concessions on these points he can say ‘fine, now my tariff is [lower].’ It’s the art of the deal; people don’t understand that about Trump,” Rickards told the BBC.

Бирок,, in any deal, the other party also has some negotiating chips on the table and China, for example, can hurt American companies exporting to China or American companies operating in China.

So who has the upper hand in the negotiations? According to a report by research firm Geopolitical Futures (GPF), the United States would suffer some damages in a trade war but would come out on top in the end.

“China would feel the impact of U.S. protectionist measures more than the U.S. would feel any economic retaliation China has at its disposal,” the report states.

What’s at Stake?

The most important point for both countries is the symbiotic relationship between China the exporter and the United States the importer. Between Chinese workers who produce cheap goods and U.S. consumers who buy them.

According to the U.S. Census, the United States imported $483 billion worth of goods from China in 2015. Since China joined the WTO in 2001, the United States was the top importer of Chinese goods in all but one year.

In an extreme thought experiment, about 15 million Chinese workers in the export sector could lose their jobs if Americans stopped importing from China altogether, a nightmare for the Chinese regime, which depends on employment to keep the people happy and itself in power.

On the other hand, the United States depends on China for cheap imports. More than 90 percent of all imported umbrellas and walking sticks come from China for example, жана 22 percent of all the stuff the United States imports.

Sourcing these products from somewhere else or producing them onshore will be difficult and almost certainly make them more expensive. Бирок,, this is a nuisance compared to 15 million unemployed Chinese.

“U.S. dependence on Chinese goods is a matter of convenience,” states the GPF report. The analysts say the United States has ample spare capacity in manufacturing to eventually make up for the shortfall.

According to the Federal Reserve (Fed), total industrial capacity utilization in the United States was only 75.1 percent in October of 2016.

“Of course, increasing capacity would not be easy. One caveat is that many of these industry groups have seen their capabilities atrophy after years of dismal performances. But these industries are much like muscles, atrophying in bad times but strengthening in good times,” states the report.

One example is the furniture industry, where Americans bought 17 percent of all sales from Chinese exporters in 2015. U.S. capacity utilization for furniture was only 75 percent during most of the year. If the United States ramped up production to 100 percent in an unlikely scenario, it could make up for all of the Chinese imports, albeit at a higher price. The same principle is true for many other industries from textiles to synthetic rubber and has the benefit that it would decrease American unemployment.

Monopoly Power

In the discussion about trade with China, we frequently hear that China has a monopoly for Rare Earth Elements (REE), a critical component for many digital products. If push came to shove, China could simply cut exports to the United States like it did to Japan in 2010.

According to GPF, Бирок,, this is another classic example of price rather than actual availability. In 2016, China produced 89 percent of global REEs. Бирок,, the United States had its own company producing REEs up until 2015, when Molycorp Inc. had to declare bankruptcy because it could not compete with the low Chinese prices.

GPF estimates that potential production by Molycorp would be enough to satisfy U.S. REE demand, again at a higher price than the current ones from China and with a time lag.

“The result would not be a catastrophe and actually would spawn a capacity for REE production in the United States or another country, such as Australia, from which the United States could import,” states the report.

Retaliation

What happens if China retaliates and slaps tariffs on American products exported to China?

According to GPF, the last time that happened it didn’t end well for China. When President Obama imposed a 35 percent tariff on Chinese automobile and light truck tires in 2009, China retaliated by slapping a tariff on U.S. chicken meat.

АКШ. tire tariff’s impact was limited: Imports from China fell by 50 percent until 2015 only to be replaced by South Korean and other manufacturers. This shows the limit on how many jobs can come back to the United States but also demonstrates that the United States is not dependent on China for goods supply.

The same goes for multinational corporations which may have to shift production to other Asian countries should China chose to make life difficult for them.

The tariffs left their mark on the tire industry in China, Бирок,. “China’s capacity utilization in the various tire segments industry has fallen to between 50 жана 60 percent. Hundreds of tire factories have closed their doors, and Chinese tire makers are cutting prices to the bone just to stay competitive in the market,” states the report.

And the U.S. chickens? Exports doubled from 2011 үчүн 2016 and total poultry production in the United States increased during the whole period.

“It is likely that future retaliatory measures would yield similar results: a short-term impact for the U.S. followed by a recovery,” states the report.

Trade Off

Although Apple could shift production somewhere else, it would take time and cost money. Starbucks, which makes 5.7 percent of its global sales in China couldn’t just replace a market of more than a billion consumers. The same is true for Boeing, which earned 13.1 percent of its 2015 revenue by exporting to China, the fastest growing airplane market.

Бирок,, there are many Chinese multinationals operating in the United States (for instance, FOSUN) or banking on the United States to become their next big market (Alibaba).

According to the GPF report, both countries would lose in a full-blown trade war, but it is the United States that holds the upper hand. Donald Trump understands this, which is why he is pushing China to get a better deal for America. If China also understands it’s in a weaker position, it will be able to avoid a lose-lose scenario.

Толук макаланы окуп

Everybody knew it but it took a while to become official.
In the case of overstated Chinese GDP figures, we now got confirmation from the CCP’s mouthpiece Xinhua that they have been made up for a long period of time, at least on the regional level.
This is just short of the National Audit Office admitting GDP numbers are basically made up. Actually, according to a report by China Daily, the National Audit Office did just that as well, but didn’t release the report.  
The Chinese economy clearly is not growing at anything like 7 percent.Wilbur RossWL Ross & Co

“One county in Liaoning reported annual fiscal revenues 127 percent higher than the actual number,” writes China Daily.
Xinhua on on the other hand quoted an official saying: “If the past data had not been inflated, the current growth figures would not show such a precipitous fall.
According to China Daily local officials also manipulated investment figures and overstated them by at least 20 percent in the case of Heilongjiang province.
They just pretended even unsigned contracts where actual investments, whether real money followed or not.

“The official statistics have deep methodological problems; the departments are under-resourced. But what’s really the key here, is that the GDP number doesn’t really tell you much about growth across the economy,” says Leland Miller of China Beige Book, a research firm which interviews thousands of companies to keep tabs on growth and other metrics.
Well, according to official state media, a lot of that growth across the economy was made up, which is one of the reason why most investors and analysts also don’t believe the headline figure for the whole country.
“Right now they’ve got an economy which isn’t growing at the 7.0 percent, it’s more like 1 or 2 percent. In Beijing they’re even saying privately 2.2 percent,” says Gordon Chang, author of “The Coming Collapse of China.
GDP grew at 6.9 percent in the third quarter according to official figures.
Billionaire investor Wilbur Ross prefers to look at actual production and consumption datarather than official data as well:
“The Chinese economy clearly is not growing at anything like 7 percent. We have felt for a couple of years that those figures were very, very generous. If you look at physical indicatorselectricity consumption, natural gas consumption, oil consumption, cement consumption, steel consumption, telecom consumption, retails salesif you look at all those indicators, none of them were growing at a rate that was equal to 7 percent and neither were the exports.
So how fast is China’s GDP growing after all? Nobody knows for sure, but here are the six best estimates.
 

Толук макаланы окуп

In economic analysis you have estimates and official data. Analysts estimate what they think the official number is going to be. They are successful if the estimate is close to the official target.
With China’s GDP it’s a bit different. The official number (6.9 percent for the third quarter of 2015) is more like an advertisement for the Chinese economy and has little to do with the situation on the ground. You can chose to buy the product, or you don’t
So sometimes GDP estimates for China are more accurate than the official data. Here are Epoch Times favorite’s for the third quarter of 2015

Lombard Street Research: 1.5 percent annualized

Rationale: “Net exports subtracted a bigger chunk than first estimated. Quarter on quarter, we reckon growth was just 0.4 percent. Banks are saddled with bad debt, so cutting the lending rate will have a mutedeffect on growth.
(Lombard Street Research)

Gordon Chang: 1-2 percent annualized

Rationale: “Right now they’ve got an economy which isn’t growing at the 7.0 percent, it’s more like 1 or 2 percent. In Beijing they’re even saying privately 2.2 percent.

Li Keqiang Index: 3 percent annualized

Rationale: Premier Li probably wishes the 2007 memo from the U.S. state department never got leaked. In ithe said official data was unreliable and rail cargo, electricity consumption, and new loans more accurately describe growth.
(World Economic’s Li Keqiang Index)

JP Morgan: 5 percent

Rationale“We estimate every 1 percent slowdown in China takes about 0.5 percent off of global growth. That impact on emerging markets is more severe than on developed markets [around 1 percent],” J.P. Morgan’s head of research Joyce Chang said at a panel discussion at the Council on Foreign Relations on Sep. 16.
Since most of China’s trading partners like Japan and Russia have slowed more than 1 percent in recent quarters, even the five percent start to look questionable.

Wilbur Ross: 4-5 Percent

Rationale: Billionaire investor Wilbur Ross has investments in China and closely follows what happens on the ground.
“The Chinese economy clearly is not growing at anything like 7 percent. We have felt for a couple of years that those figures were very, very generous. If you look at physical indicatorselectricity consumption, natural gas consumption, oil consumption, cement consumption, steel consumption, telecom consumption, retails salesif you look at all those indicators, none of them were growing at a rate that was equal to 7 percent and neither were the exports.
“So we have felt for some time that the real growth is something less than 5 percent, probably nowadays something less than 4 percent.

China Beige Book: No Change

Rationale: The independent research institutions doesn’t put a number on GDP but notes corporate profits were roughly stable in Q3.
“Those touting China’s sudden fragility are either exaggerating current problems or have entirely missed the slowdown of the past several years,” the report says.
 

Толук макаланы окуп

Wilbur L. Ross Jr., Chairman and Chief Strategy Officer at WL Ross & Co., in Chelsea, Manhattan, on Sept. 2, 2015. (Samira Bouaou/Epoch Times)Wilbur L. Ross Jr., Chairman and Chief Strategy Officer at WL Ross & Co., in Chelsea, Manhattan, on Sept. 2, 2015. (Samira Bouaou/Epoch Times)

NEW YORK—Wilbur Ross Jr. is not like the other Wall Street high rollers like Donald Trump and Carl Icahn. He is a soft-spoken, well-mannered, and impeccably dressed gentleman, and has succeeded on Wall Street, becoming a billionaire in the process.

Ross, worth $2.9 миллиард according to Forbes, has made his names in distressed assets investments and rose to fame turning around Bethlehem Steel as well as Burlington Industries.

Unlike the classic private equity raiders, Ross has managed to save jobs during these turnarounds, working closely with the unions. “In our work, which is mainly dealing with distressed situations, we’re able to do good and do well for ourselves at the same time,” Ross claims.

Epoch Times spoke with Ross about the people factor in investing, the current market valuation, Кытай, and his troubled investments in Greece.

READ: Wilbur Ross on the People Factor in Investing
READ: Wilbur Ross on His Greek Bank Investments

EPOCH TIMES: When you look at American manufacturing today, have some of your predictions about Chinese competition from 2003 come true?

WILBUR ROSS: What we argued against then, was dumping; namely selling products for less in a foreign market than their true price in your domestic market.

China is so much about jobs as opposed to profits.

That’s the kind of activity that we think should be protected against. We are generally free market people but what was happening back in the early 2000s with steel and what is starting to happen again, is that product was actually being sold in this country for less than the total cost of manufacturing it.

That’s not legitimate competition. If someone can make things more inexpensively in their country and sell it here that’s fine with me. But it shouldn’t be that they have one price in their country and a lower price outside.

EPOCH TIMES: Why do you think China did this?

MR. ROSS: I think they had a period of overcapacity and because China is so much about jobs as opposed to profits, it was very important for the government to maintain jobs. So to maintain jobs they had to maintain production, even though there was not enough demand for it. The way they tried to solve the problem was by dumping it outside.

EPOCH TIMES: The United States is probably the most innovative country in the world, something that cannot be said about China.

MR. ROSS: China is coming along in terms of innovation. They now have the world biggest and fastest computer. That would have been unimaginable a decade ago. They’ve launched spaceships into outer space. They have not yet gotten to be as innovative as the United States is, nobody has been as innovative. Year after year the United States gets more patents than any other country by a wide margin. Interestingly, it’s Japan that comes in second.

They have not yet gotten to be as innovative as the United States is, nobody has been as innovative.

EPOCH TIMES: Why is there this difference, especially between the United States and China which has mostly been copying and stealing technology? Now they have something, as you said, but they lack innovation versus the United States which has always created things?

MR. ROSS: The United States is basically a free market economy and their entrepreneurship has been highly prized here for centuries and centuries so there’s a real tradition of risk-taking. Innovation involves a lot of risk-taking.

A state-owned enterprise is much less likely to be a big risk-taker then private capital. Since China had been so dominated by the state-owned enterprises it’s hard in a big bureaucratic system to be innovative. Look at the U.S. government itself, what interesting innovations have they come up with?

When that government shows panic it makes people more frightened, not less frightened.

So it shouldn’t surprise one that a very state-dominated economy has some trouble. In recent years China has made big strides in some areas. They’re also are putting much more emphasis on engineering and technical education in their university system. Something like 42 percent of Chinese graduates this coming year will be in math, engineering, science, or technology. That’s about 3 times the percentage in the United States.

EPOCH TIMES: You are talking about quantity.

MR. ROSS: Yes.

EPOCH TIMES: China is always big on quantity, but sometimes the quality is not as good.

MR. ROSS: If you have more engineers and more scientists, just on a probability basis, the probability of them discovering something becomes higher.

Billionaire investor Wilbur L. Ross Jr., Chairman and Chief Strategy Officer at WL Ross & Co., in Manhattan, on Sept. 2, 2015. (Samira Bouaou/Epoch Times)

Billionaire investor Wilbur L. Ross Jr., Chairman and Chief Strategy Officer at WL Ross & Co., in Manhattan, on Sept. 2, 2015. (Samira Bouaou/Epoch Times)

EPOCH TIMES: What about the current problems in China, like the stock market?

MR. ROSS: We think that China has two separate problems right now. One is the market itself, the equity market, and that got completely out of control. In the June period, many more new brokerage accounts were opened by retail investors than had been in the whole prior year. And most, two-thirds of those who opened accounts, did not have a high school degree.

So it was very unsophisticated people who had been lured in by the huge appreciation in the Chinese market. Still, only 8 percent of Chinese families own securities. You also had the phenomenon of margin trading. Fifteen percent of the entire Chinese market was on margin at the time of the peak of the bubble, 15 percent of the freely tradeable shares. That’s a huge percentage. So you had all those factors compounding each other, then the bubble burst.

I think what they’re trying to do is several things all at once and that makes it very challenging.

I think what then happened, the government seemed to have panicked and made lots and lots of very panicky moves. They first raised the margin requirement then they lowered it. They threw hundreds of billions of dollars into the market. Now they’re prosecuting people who spread negative stories about the market.

I think the difficulty with all that is, when a government shows signs of panic, particularly a government that historically has been able to control what happens pretty well, when that government shows panic it makes people more frightened, not less frightened.

EPOCH TIMES: What do you think about the official growth numbers?

MR. ROSS: The Chinese economy clearly is not growing at anything like 7 percent. We have felt for a couple of years that those figures were very, very generous. If you look at physical indicators—electricity consumption, natural gas consumption, oil consumption, cement consumption, steel consumption, telecom consumption, retails sales—if you look at all those indicators, none of them were growing at a rate that was equal to 7 percent and neither were the exports.

So we have felt for some time that the real growth is something less than 5 percent, probably nowadays something less than 4 percent. Many people in the outside world believed the 7 percent growth and now that it’s become pretty clear that it’s gone there’s been a readjustment of people’s thinking. Since that came as a shock to a lot of people, although it shouldn’t have, it produced spillover effects into our markets as well.

EPOCH TIMES: Do you believe in economic reform Кытайда?

MR. ROSS: I think what they’re trying to do is several things all at once and that makes it very challenging.

They’re trying to become more of a consumer-driven economy, but the reality is that their largest driver is capital investment. It’s hard to make that transition because capital investment is still about 44 percent of the economy.

They’re trying to make the transition, but meanwhile they’re doing the very-much-needed anti-corruption drive and that in a strange way has hurt consumer spending. People are afraid to show they’re spending a lot of money, even middle-class people and even people who have nothing to do with corruption.

You are trying to get rid of some of the huge amount of corruption in the country and yet it’s hurting the transition to a consumer-based economy.

I think they’ll get there, just that the transition is a hard one. Meanwhile there is super-imposed upon it, the economic issues in the rest of the world. Combined with China’s rising labor costs and the very strong currency, make it very difficult to be an exporter.

EPOCH TIMES: What can the regime do?

MR. ROSS: They need to continue lowering the cost of borrowing there. It still is very high relative to developed markets. The bank reserve requirements, well they’ve cut them too, they’re very high relative to those elsewhere in the world.

They need that stimulation for the economy. The other thing that they need to do, and I believe they will in the 13th 5-year plan which will come out in October.

I think this time there will be much more focus on social safety network, on education, on healthcare, on some of the parts of the economy that have not kept pace with the overall economic development of the country. I think they need to do that and I believe you will find that they do it with the October announcements.

This interview has been edited for brevity and clarity.

Wilbur Ross Jr. is the chairman and chief strategy officer of WL Ross & Co., an investment management company which is part of Invesco. Before founding WL Ross & Co. боюнча 2000, Ross worked for Rothschild Investments as a bankruptcy adviser and private equity manager. Ross holds a B.A. from Yale College and an M.B.A. from Harvard Business School.

Толук макаланы окуп